Brazilian Industry Wants Urgent Reduction of Interest Rates

Brazil’s two biggest industrial trade associations,  did not like the decision by the Monetary Policy Committee (Copom) to leave the country’s basic interest (Selic) at 19.75% per year.

The industry associations are Fiesp (Federação das Indústrias do Estado de São Paulo – São Paulo Industrial Federation) and Ciesp (Confederação das Indústrias do Estado de São Paulo – São Paulo Industrial Confederation)


In a note, Fiesp said the decision effectively buried the possibility of growth in the first semester and threatens growth for the rest of the year. Ciesp came out with a call for the immediate reduction of the Selic so the country could return to growth.


Paulo Skaf, the Fiesp president, said he saw the decision as the beginning of a reduction in the Selic, following a steady rise in the rate since last September. Skaf also pointed out that economic indicators show that the first half has already gone down the drain.


“We have to save the rest of the year. And the only way we can do that is by reducing interest rates quickly. This is necessary because the market takes time to react to changes in the Selic,” he declared.


Skaf went on to say that the government itself exerts inflationary pressure. He cited a government decree that raised discretionary spending by US$ 1.65 billion (US $4 billion) between now and August.


“Even if good results with the primary surplus permit some slack, the government should not take advantage of that fact and increase its spending.


“There are better things they could do with the money, such as debt reduction. Ironically, government debt is aggravated by the interest rates they approve,” he said.


Meanwhile, Boris Tabacof, a Ciesp director, said he sees no reason for the government to keep interest rates at 19.75% annually.


“Such high interest rates only increase uncertainty, inhibiting investments,” said Tabacof in a note where he added that instead of depressing consumption to control inflation it is necessary to expand supply which will require more investments.


“We could lower interest rates and have renewed growth. The political situation should not interfere with that possibility,” he concluded.


Agência Brasil

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